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The Wall Street Journal  

November 17, 2006


CA Sues Ex-CEO
To Recoup Legal Fee

November 17, 2006; Page B2


CA Inc. is suing convicted former Chief Executive Officer Sanjay Kumar for repayment of the $14.9 million it fronted for his defense, and a court agreed to lay claim to his house, sports cars, yacht and other assets as security that he will be able to repay the sum if he loses the suit.

Software maker CA, formerly Computer Associates International Inc., also said it plans to seek additional restitution.

[Sanjay Kumar]

CA filed suit against Mr. Kumar Nov. 9 in New York State Supreme Court for Nassau County in Mineola. Late Wednesday, Judge Stephen A. Bucaria granted CA a motion for an order of attachment. It covers Mr. Kumar's $9 million house in Upper Brookville, N.Y., two Ferrari 550 Maranello sports cars from the 1999 and 2001 model years and a 57-foot Italian Azimut yacht as well as a Land Rover and a Volvo.

The order also attached $9 million that the Islandia, N.Y, company says Mr. Kumar is owed by his mentor and predecessor, CA founder Charles B. Wang, in payment for a stake that Mr. Kumar owned in the New York Islanders hockey team. It also attached Mr. Kumar's bank accounts.

The total value of the properties sought in the attachment appears to exceed CA's demand for $14.9 million, but it isn't clear whether Mr. Kumar holds sole title to all of them. Jack Cooney, Mr. Kumar's attorney with the law firm Davis Polk and Wardwell, declined comment on the attachment order.

Mr. Kumar, 44 years old, was sentenced this month to 12 years in prison on charges of financial and securities fraud and obstruction of justice.

Gary Brown, director of litigation for CA, said the demand for repayment of legal expenses is a prelude to a more complex claim involving restitution to CA, its shareholders and other investors for damages caused by Mr. Kumar's actions in running a $2.2 billion accounting fraud and an elaborate scheme to mislead Justice Department investigators. Kenneth Handal, CA's general counsel, said in an affidavit that the restitution claim will probably top $100 million, "an amount that most likely he is unable to pay."

Federal prosecutors are due to file another restitution claim against Mr. Kumar in January, with U.S. District Court Judge I. Leo Glasser in Brooklyn, N.Y. Judge Glasser oversaw the criminal case. He fined Mr. Kumar $8 million but said the sum might be adjusted to make money available for restitution. The restitution would be made to victims of his crime, possibly including CA itself, shareholders and former shareholders.

The federal restitution claim is likely to have priority over CA's legal-fees request, according to one person familiar with the case. "We're making every effort we can to work with the government for the best interests of shareholders," Mr. Brown said.

Mr. Brown said CA has paid $225 million into a restitution fund for investors and $174 million in settlement of a class-action suit. He said that CA itself is a victim of Mr. Kumar's criminal actions, and he said payments to the company by Mr. Kumar will enhance the value of the company and benefit longtime shareholders. Its largest shareholder, Swiss investor Walter Haefner, has maintained his 22% stake even as the stock was buffeted by the aftershocks of the accounting manipulations.

CA said the order of attachment was necessary, based on evidence it found that Mr. Kumar had frequently transferred assets to his family members. CA said he transferred a $20 million bond portfolio to his wife in 2002, the day after a New York Times article revealed that the Securities and Exchange Commission had started an investigation of CA's accounting practices.

CA said it has paid $14.9 million to Mr. Kumar's law firm, Davis Polk, since November 2003, including $4.3 million in April shortly before Mr. Kumar surprised prosecutors by pleading guilty.

CA said, under New York state law, it was obligated to pay the legal expenses of Mr. Kumar and other defendants during investigations and court cases "if the person acted in good faith...and had no reasonable cause to believe the conduct was unlawful."

Mr. Brown said case law in Delaware, where CA is incorporated, "establishes that a person who is convicted in a criminal case is not entitled to indemnification" for legal costs.

Defense attorneys said such claims for repayment of legal fees are rare, in part because victims seldom have sufficient assets to pay for a major case.

Mr. Kumar's assets appear sufficient to at least cover the legal costs. Mr. Handal said Mr. "Kumar has taken and will continue to take steps," to move assets out of CA's view.

Write to William M. Bulkeley at bill.bulkeley@wsj.com1

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